Qualitas Ad Valorem Principia Mathematica: QAV America #74

QAV AMERICA 74

[00:00:00]

Cameron: Welcome to QAV America, Tony. Uh, this is. Gee, I don’t have my notes open. Gee, I should have, I should have done that before. It’s episode 74. We’re recording this on the 13th of October, 2026. Uh, we just did our Australian show, Tony, where we talked about the news. I said that this title of this show is actually now Qualitas Ad Valorem Principia Mathematica.

We talked about how mathematicians are all out of a job now. How, um, despite Donald Trump assuring us that there’s peace in the Middle East and, uh, oil is flowing freely through the Straits of Hormuz, uh, there’s attacks. Things are getting blown up by mines and missiles left, right and center. Brent is back up.

WTI is back up. He has an energy ceasefire between Russia and Ukraine, which collapsed immediately. Things are, things are not [00:01:00] going to Donald Trump’s plan, surprisingly, ’cause usually everything he does is, uh, so s- goes so smoothly and is, is winning so bigly. America is winning bigly. The world is winning bigly

Tony Kynaston: So bigly that bond yields are going up

Cameron: Yes, you did a whole thing on our Australian show about bond yields and, um,

Tony Kynaston: Bonds

Cameron: Bonds going up.

Tony Kynaston: Yeah

Cameron: time they came out with a new Bond film. Have they cast the new Bond yet? I don’t think they have

Tony Kynaston: haven’t, no. Lots

Cameron: Gary Oldman. Fat Gary Oldman, that’s who I want to be the new Bond

Tony Kynaston: one of the rumors was that, uh, what’s his name? River, of the agents of Gary Oldman’s in Slow Horses was gonna be James Bond, but I hope not ’cause he’s, mm, doesn’t cut the dashing figure in my opinion. Oh, but Pierce Brosnan in Series 3 of Mob Lands,

Cameron: Good.

Tony Kynaston: really good. Really, really good. Yeah, so good. And Helen Mirren, too, and Tom Hardy. all in overdrive. It’s [00:02:00] fantastic

Cameron: Fantastic. I gotta, I gotta watch that. Just not enough time.

Tony Kynaston: Hmm?

Cameron: enough time. Too much kung fu, not enough time There is a, there is a guy in, um, Slow Horses, I’m just thinking of him. Not the guy who plays River, but the guy who plays sort of his arch enemy, um, Spider. Actor called Freddie Fox. You know Spider?

Sort of blonde guy, ridiculously good-looking.

Tony Kynaston: No, can’t say I do

Cameron: in the first season, which I’ve only seen a few episodes of the first season, he, he sort of works for the, the main MI5 or MI6 or whatever it is, and is always, you know, they, they talk shit to each other.

Tony Kynaston: Oh, yeah, I know who you mean. Yep

Cameron: but he was in, um. Oh, it looks like he was in The House of the Dragon, too.

But we saw him in, um, The Great. Uh, the show about Catherine the Great.

Tony Kynaston: Okay

Cameron: was, like, King Hugo of Sweden, I [00:03:00] think. I think he’d be a good Bond.

Tony Kynaston: Yeah

Cameron: Very good-looking young fella. Anyway, I did want to talk a little bit about our US portfolio before we get too far, Tony. Still struggling, the model portfolio, to get back to its highs.

Um, we’re almost at parity now with the S&P 500, uh, where we were double market not that many months ago. All time, as of today, we are running at 81% versus the S&P at 70, just, just below 76%. So we’ve fallen right down to parity. Um, go back to July, early July, we’re at 123 versus 70. So, uh, it’s not that any [00:04:00] of our stocks are doing particularly poorly.

Um, a lot of them are up 100, 200%. Half of them are up over 100%. The rest are doing quite well, 30, 40, 50, 70%. But as I’ve mentioned a few times, we have a concentrated reversal in two of our largest winners. So WLFC itself has caused 91.5% of the net loss. And ENVA, Enova, is the other one. Enova has crashed a lot as well.

Um, in July, at the end of July, it was at, uh, 250. We bought it at $59. It was at 254 at the end of July. By the 9th of October, it was down to 178. So it had fallen 30%, but it’s still up 198%. [00:05:00] Uh, well, it was when I ran this report. Today it’s up, um, 196% since we bought it. So

Tony Kynaston: I think it’s worth saying that we don’t rebalance, we don’t take profits until we need to under our sell conditions. So stocks can become very overweight in our portfolios, but we don’t mind that

Cameron: Yeah. So we, we got heavily concentrated for a variety of reasons in those two stocks and, uh, they went up a lot and then they came back a lot. So that’s pulled us right back down. But they could go back up again tomorrow. We’ve seen this before where things, things dip and, you know, there have been times in our US portfolio.

If I go back to November 2025, October 2025, in fact, if I go back– Oh, my God, my bir- it’s my birthday every time. So if we go back to Oc- the 13th of October, which is, what, today? Like a year ago, we were f- up 55% and the market was at 50– the S&P was at [00:06:00] 50%. So we had been triple market,

Tony Kynaston: Mm-hmm

Cameron: um, in October 2002– or November 2024, which was about a year into the portfolio, we were doing triple market.

We were up 100% versus 34%, 104 versus 34. Then we were back to parity by October 2025, back to double market back in July, and now we’re back to almost parity again. So it’s gone through massive swings just depending on chaos happening in the US markets, right, wherever it’s at.

Tony Kynaston: sizes too. I mean, it’s something we’ve talked about before on the Australian show, but we are gonna have volatile portfolios, especially in the early days, um, because we don’t trim sizes and rebalance, which I think hurt returns in the long term. Um, but in the short term, they can cause swings as well

Cameron: [00:07:00] You know what we should do? Tuck it in. Do the tuck in, Tony. It’s a joke left over from our last show

Tony Kynaston: We should double the investment now, though, ’cause this is time to buy the stock portfolio ’cause we’ll be double market again in a few months

Cameron: Well, mm, yeah. Don’t have any cash to buy, Tony. We’re fully, fully invested. Uh, what else have I got? So yeah, that’s basically that. I did, I did, um, run a big deep analysis on it this week just to see what was going, to see if there were any other trends ’cause we, you know, we’ve got a lot of, um, energy related stocks, we’ve got a lot of financial stocks in our portfolios.

Really I could find no g- no real trends. Um, everything was tracking along reasonably well. Our live portfolio, US live portfolio still hasn’t quite caught up to the S&P. Um, our portfolio’s 11% up. Uh, S&P’s at 13 and a half, but it’s doing okay. Pitney Bowes is up [00:08:00] 56%, Opportune Financial is up 55, Danaos is up 43%, PBR is up 40%, the Brazilian oil company that we talked about a few months ago.

I actually did a Reddit post on that, um, uh, yesterday because I keep seeing on the value investing Reddit post people going, “Value investing’s dead. It’s all over. Market’s priced everything in. Everyone knows what’s going on.” I’m like, “Really? I bought an oil company, a Brazilian oil company, and it’s up 40%,

Tony Kynaston: What did they– what do people

Cameron: in three months.”

“Oh yeah, but just wait till the election happens and, uh, Bolsonaro gets in, or this gets in, or wait till this happens.” And I’m like, “Yeah, I don’t, I’m not in the job of predicting election outcomes. I just look at the m- look at the numbers,

Tony Kynaston: Yeah.

Cameron: I re- I respectfully disagree,” is what I keep saying. Um, on the other hand, uh, [00:09:00] CVGI Commercial Vehicle is down 18 and a half percent, so that is one s- the one stock that’s not doing particularly well in the live portfolio.

But, uh, all in all, things are chugging along. I’m not that unhappy with it So my deep dive today, Tony, my Pulled Pork, is on another oil company, as I teased on our last, uh, show. And it, it’s a, you know, it’s got a bit of an interesting story, a little bit boring. There’s a little, there’s a few things I learnt from this.

I’m, I’m always learning stuff. Um, I mean, it doesn’t have, it doesn’t have Operation Car Wash like PBR had, that level of epic corruption. I was reminded of that when I was writing the Reddit post again. I was like, “Oh my God, this is a great story.” You don’t get great stories like that, uh, in Australia.

They’re always boring, um, usually. But I mean, the one you talked about today had a little bit of, little bit of fun in it, but, you know, it’s not, it w- it wasn’t like [00:10:00] presidents going to jail over it like there was in Brazil. This is a company called APA. Uh, their ticker code is APA, uh, surprisingly

Tony Kynaston: That’s the US APA. There is an APA in Australia as well

Cameron: That’s right. This is APA Corporation. They’re an American oil producer. Go by the name of Apache is their brand

Tony Kynaston: I thought you would have had the, the music lined up. You do?

Cameron: Well, I can’t. I don’t have, I don’t, I don’t have the rights. We’ll get– We won’t be allowed to put this on Spotify if we,

Tony Kynaston: Ah,

Cameron: illegal music, Tony. They will send me a cease and desist, and it’s all a pain in the ass, trust me. But yes, and I particularly like the, uh, bongo version. Do you know the bongo version of Apache?

Tony Kynaston: know.

Cameron: Oh, yeah. There’s a bongo version, and then Grandmaster Flash did a scratching version of the bongo version of Apache.

Tony Kynaston: All right. Apache

Cameron: you haven’t.

Tony Kynaston: [00:11:00] No

Cameron: yeah, yeah. Like, I’m an Apache connoisseur. I’ve heard all the versions of Apache that, that, that have ever been recorded. Apache is one of the great tracks. I’m surprised they can still get away with using the name Apache today in the United States.

I’m surprised that you can get away with, uh, cultural appropriation like that. Uh, but they’re, you know

Tony Kynaston: They’re all

Cameron: I was gonna say they’re.

Tony Kynaston: gonna care?

Cameron: Yeah, yeah, I was gonna say they’re from Texas, not really from Minneapolis, but still. Yeah.

Tony Kynaston: Hmm.

Cameron: Uh, so they have oil-producing fields in Texas, Egypt, and the North Sea, plus they’re building a big one sort of on the coast of South America, the northeastern coast of South America in Suriname.

So it’s a, it’s a fascinating business, and I learned a lot about, uh, how i-i-if you’re a, in this case, a gas, um, provider, uh, miner, refiner, miner, I guess, [00:12:00] sometimes you have to pay people to take your gas.

Tony Kynaston: Oh, okay

Cameron: usually if you have gas as a byproduct of oil, as we’ve talked about in other episodes, you sell it.

Tony Kynaston: Mm-hmm.

Cameron: their case, they’ve had to pay people to take their gas off their hands. I was like, “Really? That’s a thing?” They said, “Yeah, that’s a thing. You gotta do something with it. You can’t just let it go off into the air. The gas is coming out. You gotta do something if there’s no market for it.” Anyway, get– we’ll get into that.

Hold on, I gotta cough Nearly over my cough, but it’s still there. So the shares trade on the Nasdaq under APA, as I said. Um, share price is up 37% since July, a bit like PBR is up 40% since July. It’s almost like there’s something been going on in the oil market in the last few months. I don’t, I don’t really know what that would be.

Um, and the market cap is roughly $16 billion. [00:13:00] Company was founded in 1954 by three gentlemen, Truman Anderson, Raymond Plank, and Charles Arnall, Arnall, Arno, maybe Arno, A-R-N-A-O, Arno. The– With a $250,000 investment, the APA came from their names and an early employee, Helen Johnson, suggested adding the A on the end.

Sadly, not after Che Guevara, which would have been a much cooler story. Uh, she probably didn’t know who he was in 1955

Tony Kynaston: Might have helped them in South America too

Cameron: Yeah, well, m- m- maybe. Um, maybe in Bolivia or Cuba or, not so much in Argentina. Um, and she received a $25 government savings certificate for the idea. She bought stock in the company and is now a billionaire No, I’m kidding.

I have no idea what happened to her. Uh, [00:14:00] I wish that was the story, and I went to great lengths to try and find out what happened to her, and I, I came up. I even went and read the official company history to find out what happened to her. Uh, I was hoping there’d be a good story, but I couldn’t find anything.

Sorry. Fun fact about Plank, though, Raymond Plank, after flight school, he was assigned to the 43rd Bomb Group, 64th Bomb Squadron in the Pacific Theater as a B-24 bomber pilot, completed 40 missions. Three of his aircraft were so badly damaged in combat that they never flew again, and yet he survived. And then on August 9th, 1945, while based in Okinawa, he took an unauthorized flight to go witness the mushroom cloud rising over Nagasaki And said, “You know what I’m gonna do?

Build an oil company.” Uh, Arno and Plank. [00:15:00] No, not Arno and Plank. Yes, Arno and Plank were childhood friends. And Anderson came along later. So Plank, after the war, went to Yale. I think he was at Yale before the war actually, then he went to the war, came back and went back to Yale, graduated in 1946 with an arts degree, and then formed a tax advisory firm, got to know a bit about investments being offered in oil and gas and decided to set up his own oil exploration firm.

Um, brought Plank along for the ride and then Anderson, I think, well, Anderson had known him during his accounting tax advisory days, was sort of impressed with him. They became friends and the three of them set up this, uh, company. Their first well– well was drilled in Oklahoma in 1955 and produced only seven barrels a day.

The second produced 700 barrels and then when oil prices fell in 1960, they started branching out. They [00:16:00] started acquiring interests in all sorts of businesses, steel, plastics, cattle, ranching, aerosol cans. They acquired 58 firms Then in 1987, there was an oil price collapse and changes to American tax rules, and they basically focused their business back on finding and producing oil and gas.

Uh, but they keep buying and selling businesses, as we’ll see, but it’s in oil and gas now, not all of these other diversified, um, interests. They tried to be a bit of a Berkshire Hathaway, but now they’re just oil and gas. Texas is the largest part of the business, um, and they do what you would expect for an oil drilling company.

They drill. Drill, baby, drill. They then connect the wells to pipes. They sell oil, natural gas, and things like propane that get separated from the gas. Its American fields produced [00:17:00] $3.8 billion of sales in 2025, which makes it the largest component of its operation. In the April to June 2026 quarter, oil brought in 1.826 billion out of 2.037 billion in total revenue, so about 90% of their revenue came from that.

But gas is the strangest part, as I mentioned before. So you can have a gas glut, too much gas, uh, and you, you, you don’t know what to do with it, and it’s kind of a regional thing too. So there was too much gas in West Texas for the available pipes to take it away, and so they had to pay someone $109 million.

Tony Kynaston: Oh

Cameron: actually, their, their gas revenue for the gas that they were producing themselves was negative [00:18:00] $109 million. I’m not exactly sure what the split was, but they had to pay someone to take it off their hands, literally, you know, take this and do what you want. And I said– I was asking GPT about this. I was like, “So they, do they put it in storage and then, you know, pay somebody to store it and then sell it later when they can get access to pipes?”

And it was, “No, no, it’s like they take it and then that person owns it and does whatever they want with it.” So they might have pipeline access to move it, these, um, people that take it off their hands or supply it to a customer, or they could store it, whatever it is. But APA couldn’t, um, deal with it, so they had to pay someone to take it.

Uh, but on the other hand, they were at the same time simultaneously buying other people’s gas cheaply and selling it at a profit. So it’s complicated and I [00:19:00] spent a little bit of time trying to figure it out, but there are two aspects to it. So you have gas at the well that you need to deal with and if your pipes from that well are congested, there’s too much gas, then you, you, you have to ta- pay someone to take it off your hands.

But if you have pipelines somewhere else where someone else has got a glut, then you can take their gas and you can move that. So, you know, they, they have pipelines, they have their own gas, they have other people’s gas. So i- it’s kind of, you know, complicated. They know what they’re doing though. So at the end of the day, they did make money out of the gas part of their operation all up, but, um, they had to pay people to take their own gas.

So there you go. Egypt is an interesting part of the operation. So they have, uh, there’s, there’s three partners in the Egyptian operation. There’s the Egyptian General Petroleum [00:20:00] Corporation, the state oil company, and then there’s Sinopec, a Chinese oil group. Each of them owns a third in the Egyptian project.

APA run it. Uh, they put up money, they do the exploration, they do the drilling. If they are successful, they get some of the production to cover their costs, then they have a share of the remaining output, as do EGPC, and then there’s a profit share between the three companies of anything outside of that.

They also, APA can also sell the oil to the EGPC. I think EGPC has a contracted amount that they’re gonna buy, but if they need more than that, they’re also a customer. So again, it’s, uh, relatively complicated. They also need to pay Sinopec for their share of it, and I think in the first six months of 2026 they paid [00:21:00] Sinopec $164 million.

So it’s a bit of a complicated relationship there, move, uh, tracking where the money goes, but it’s an interesting part of the operation. And then as I mentioned before, they’re still buying and selling various businesses. Um, in April 2024, they bought Callon Petroleum, another American oil producer that has fields and the rights over future drilling locations in Texas and New Mexico, same sort of area that APA already has.

So their idea was to concentrate, uh, the, the operations and reduce costs. Uh, the headline deal was about $4.5 billion, including debt. Um, they paid the owners roughly 70 million new APA shares and took on the debt obligations as well as cleanup costs. And cleanup costs [00:22:00] is interesting. I, I’ve got an interesting story about that, which I’ll get to in a bit.

Um, so if you look at their numbers over the last couple of years, the 2024 numbers include about nine months of the Callon operation. 2025 numbers include a whole year. But it’s also hard to track the numbers. You know, obviously oil and gas have been so turbulent over the last couple of years that there’s, there’s price fluctuations, there’s transport problems, there’s gluts with the gas.

It’s just an absolute nightmare. I’d hate to be in this part of the business. Absolute chaos, uh, trying to manage expectations with all of this. So their numbers are a little bit all over the place. Um, June quarter oil sales rose though from, uh, 1.381 billion in 2025 to 1.826 billion in 2026, about $445 million [00:23:00] increase. Higher prices added about 688 million, but they had lower volumes.

So higher prices and lower volumes, still gonna make money. Average price they got for, uh, for oil rose from $65 a barrel to $98 a barrel across those two quarters, but oil production fell about 10%. They sold some fields. They had some older wells that were declining. They had interruptions in the North Sea.

They had some Egyptian sharing that they had to do. Field running costs fell from 367 million to 353 million. Um, not much, but cost per unit rose 10%. So as I said, it’s, it’s sort of a complicated mix of, um, prices going up, production coming down, costs going up, et cetera, et cetera. Um, they [00:24:00] do have management measures for its controllable cost savings.

They’re fairly bullish about it. They’ve raised their target for the annual pace of savings from 450 million to 500 million by the end of 2026. They say they’re gonna be running fields more efficiently, bringing down the costs of wells, simplifying the company’s administration, but that remains to be seen how well they deliver on that, I guess.

Following the actual cash over the first six months, cash generated by operations was 2.277 billion in 2025 and 2.26 billion in 2026, so almost unchanged. But here’s some of the other messiness that I mentioned. So in 2013, they sold their operations in the Gulf of Mexico. They had a, what’s called a shallow water operation, Fieldwood Energy.

They sold it in 2013 to another oil producer for $3.75 billion [00:25:00] in cash. They said they were gonna use the money to repay borrowing and fund future activities. Fieldwood also accepted responsibility for plugging old wells and removing the equipment safely, all of the cleanup bills. Apache valued the cleanup bills at about $1.5 billion at the time. And that was all handed over to Fieldwood.

Unfortunately, Fieldwood subsequently went through bankruptcy not once, but twice, and couldn’t fund all of its cleanup requirements, and the American offshore safety regulator ordered Apache and some other former owners to pay for the cleanup work. So it’s like, I don’t know, ma- imagine selling your house and then 13 years later, the government comes to you and says, “Sorry, that person went [00:26:00] bankrupt.

You need to clean up the, uh, mess under the house that was there when you sold it.” So anyway, they, they’ve, uh, as of June 2026, they recorded $847 million of estimated cleanup obli- obligations related to those old sold fields. Um, and they’ve got more, I think another $41 million set aside for it. They also agreed to lend up to 400 million for cleanup once other funding sources were exhausted and, um, they’ve got claims against other old assets against the loans.

So that’s kind of a messy, unexpected situation that they’ve had to deal with it, deal with. They also record about another 2.93 billion of estimated future costs of closing and cleaning up assets. So it’s a, it’s an expensive business, oil, which I, you know, I never really thought about before. But when you, when you run out of oil, not only are you running out of [00:27:00] money, but you’ve also got to have money set aside to clean up

Tony Kynaston: The

Cameron: the, uh,

Tony Kynaston: side of things. Yeah. I don’t know what the law is in the US, but in Australia, you’ve got to put a bond up front to,

Cameron: Right

Tony Kynaston: help pay for it

Cameron: So then I mentioned they’ve got operations in the North Sea and that has a different kind of problem. So Britain charges three taxes on oil production profits, including an additional energy profits tax and all up they add up to about 78% before allowances and other sort of, um, calculations. And APA says that the combination of taxation and required upgrades to aging equipment they have in the North Sea no longer justifies continued investment in it.

So they have to wrap up their facilities in the North Sea before 2030. But closing down production obviously again doesn’t, [00:28:00] you know, mean that you just walk away. They have cleanup operations there as well and they have to pay for that in British pounds whereas their oil is sold in US dollars so they have to handle the different foreign exchange exposure to that.

Fortunately the pound has been dropping against the dollar. I think £1 is currently $1.32. It’s been coming down recently so that’s working in their favor but if it sh– ’cause the US dollar’s getting stronger at the moment bizarrely. I looked into that yesterday too. With all of the problems going on in the US and the treasury bills and all that kind of stuff I would have thought the US dollar would be getting weaker.

No, it’s getting stronger as a result. Uh, they’ve got a new construction site I mentioned in Suriname on South America’s northeast coast. It’s called Grand Morgu. Do you wanna guess, uh, what Grand Morgu means in the local language, Sranan Tongo?

Tony Kynaston: for Big [00:29:00] Magoo

Cameron: Yeah. Do you wanna guess what a Big Mogu is?

Tony Kynaston: The Big Magoo? I have

Cameron: Yeah. It’s a big fish, the Goliath grouper, a massive saltwater fish that can grow to roughly two and a half meters long and weigh 360 kilograms.

Tony Kynaston: Hmm.

Cameron: It also means the, uh, new dawn, so I’m not sure which this, uh, facility is, uh, named after. So this is also a joint operation. There’s a French energy company, TotalEnergies, which is running the construction and the operations. They own 40%, APA owns 40%, and Suriname’s state oil company, Staatsolie, owns 20%. Uh, they plan to have production starting mid-2028, and it should be able to handle 220,000 barrels a day, but won’t expect to see revenue coming from that for a couple of years.

[00:30:00] Hopefully, the, uh, Strait of Hormuz will be open by then, but who knows? We’ll, we will see. Won’t ef- won’t, won’t affect these guys, but might affect the oil price. So they’ve got some smaller bets as well. Um, June quarter of 2026, they agreed to buy Savant Alaska, an oil operator with pipelines and field equipment and, uh, exploration lands, about $70 million.

They also bought something called Eni in a– uh, no. So off of Uruguay, they brought in Eni, an Italian energy company, as a partner in an exploration area called Block 6. APA are keeping 60% of that, while Eni funds most of the exploration that’s planned for 2027. That’s about it for the business side of it.

Um, directors and executives all up own about 1%, so not really big enough to get a score from us. And their first quarter [00:31:00] filing said the conflict involving Iran was disrupting energy markets while transit disruptions, uh, were not directly involving APA’s assets. Higher oil prices can help sales and also increase supplier costs.

A reduction in conflict could bring prices down quickly.

Tony Kynaston: Duh.

Cameron: That’s– They actually wrote that in their filing, duh, afterwards, yeah. They’re doing some share repurchases, um, about $100 million in the first half, um, followed by $449 million in the September quarter. Management aims to return at least 60% of its annual adjusted cash after investment measure through cash payments and share repurchases.

They’re also, uh, paying down borrowing, but, uh, that’s [00:32:00] about it. You know, Tony, that’s all I’ve got for the basic overview of the company. What did you discover? I know you love picking up nuggets that I’ve missed.

Tony Kynaston: Yeah. Especially in the oil industry too. So, um, a few things. Uh, they’ve, they- Still having, or I call it the hangover. So there was, um, a $65 million class action, um, which was brought in November 2024. So, so I guess if I start again, what I’ve been trying to do is find out why such a strong company is trading on a lower PE than its, its, um, And if you look at the PE for. In other words, why is this company cheap? And the, the PE for this company is around nine times, nine– actually 9.9 at the moment. whereas if you compare it to some of the more or some of the bigger companies like Chevron, like, um, ConocoPhillips, ExxonMobil, uh, [00:33:00] they’re, they’re trading on, you know, 20, 22 times, 18 to 22 times.

So trades at a discount. Why? Well, little while ago, it was, um, had to pay out a, a class action that was brought against it for, uh, making false and misleading statements regarding economic viability of a project called Alpine High, and they wrote down $3 billion when the project was abruptly canceled.

So these are the kind of things that would make analysts think twice about, uh, going into the company. There’s a lot of, um, I guess you spoke about this a little bit, but the Middle East and is, um, unstable at the moment, and they have a big field, oil field in Egypt. And so, um, uh, they, they– there are shipping threats in the Suez Canal, not just the Straits of Hormuz.

And so there’s a, a risk of, blockage to the Egyptian oil fields. You spoke about getting out of the North Sea because of the high taxes, but, [00:34:00] um, currently, as of this month, there’s a strike action against Apache oil rigs in, um, the North Sea, so that’s causing problems there. There was a $4 million emission settlement, um, with the American EPA agency, and that was about, uh, greenhouse gases emitted across the Permian Basin. as, as you for oil and gas, you often vent it into the atmosphere. You spoke about the production downturn, which is, um, about 12%. Uh, that’s, that’s 400 odd thousand barrels, um, per day that, uh, they’re turning out, which was lower than the quarter before. Um, a-and I guess, you know, you mentioned Suriname, but it’s kind of seen as the savior for this company, just because of, um, of its ability to generate, uh, massive reserves, and they estimate the reserves at about 750 million barrels or, or about [00:35:00] 220,000 barrels of oil per day that they can pump. Um, but also too, the cost of doing that is, is so low. It’s about $30 a barrel. So not only is it a, a big find to develop, but it’s also, um, uh, a cheap one which will give them a good margin. So that’s an important one for them. But, um, know, there’s a lot going on in the South American space at the moment too.

So this oil field does come with some sovereign risk and Apache is covering that by partnering with the local Suriname oil company, which is owned by the government. but it doesn’t mean that the sovereign risk is, is dealt away and, uh, there’s, like I’ll call it public pressure. There’s certainly criticism of the government in Suriname and in Guyana because this oil field, uh, covers an area shared by both Suriname and Guyana, which are um, in the Venezuelan area of South America. [00:36:00] um, there has been some backlash in those countries about deals done before, which has been seen to be one-sided to companies like ExxonMobil and overly generous and environmental and citizens groups have successfully mounted legal challenges, um, in the past in, in this area. but there’s also, I guess- Uh, what’s happened in the Suriname, Is it Suriname or Surinami? I’m not sure how you pronounce that. the Suriname, Suriname, thank you.

Cameron: Hmm

Tony Kynaston: they– We spoke before in the Australian show about, uh, government debt. Suriname in 2020 defaulted on its foreign debt. and so it’s taken them a while to slowly rebuild their reputation, uh, under a three-year IMF reform program. And, um, they’ve done since then is to begi- the government’s begun spending aggressively ahead of its oil [00:37:00] recoveries and so there’s a warning from the IMF that the public debt is back up to 106% of GDP in Suriname so there, there could be economic difficulties in the area.

Cameron: Well, that’s lower than France, Tony.

Tony Kynaston: It

Cameron: doing fine

Tony Kynaston: than the US so, uh, gets a tick from me, Cam but it could also mean that when the govern- when it comes– push comes to shove and the government can’t afford its budget anymore it may look for extra taxes either on, um, multinational oil companies or even in one, you know, particular case to nationalize the oil fields again.

So a fair bit of sovereign risk attached to this, uh, this project and, um, there’s also the normal sort of problems that happen, um, in small countries that have, uh, exposure to a large, um, uh, commodity or a large potential, uh, field that could transform its economy often called the Dutch disease and.

But basically means that, [00:38:00] um, when an– something like a massive oil boom, flows through the, the domestic economy it can cause the currency to run up and spike and that makes all the other local industries, um, uncompetitive and has– and causes a backlash in the economy I guess. and it also creates large wealth inequality which can have, um, political unrest forward. and then a– and then there is also too, um the border with Venezuela. It’s in the Venezuelan area, and there has been cases where Venezuela has laid claim to some of these oil fields too. So, um, that may also spark up if this becomes e-extremely profitable, which it, uh, looks like being. So, you know, sovereign risk is often a case that goes hand in hand with all of these kinds of companies, whether they’re miners or whether they’re oil companies operating overseas.

Um, the good ones tend to, to manage the risk as much as they [00:39:00] can. They employ locals, they, um, partner with the government, they pay their taxes and royalties, but it doesn’t a-always work out well for them. So one of the reasons why this company trades at a PE, a sub ten PE when the industry can trade higher than that.

But, um, that’s the risk reward in this case, and it does provide value investors with, um, a strong incentive to consider a stock like this

Cameron: I think the official name is Trumpazwalia now, Tony

Tony Kynaston: yeah, and you mentioned the Gulf of Mexico before. I was gonna ask you where that is too.

Cameron: Yeah, I’ve never heard of that before

Tony Kynaston: Yeah

Cameron: Okay. Well, uh, let’s run through the scores. Stockopedia quality rank is 97,

Tony Kynaston: Very

Cameron: so we scored it for that. The stock rank is 99, so we scored it for that. The F score is an eight, so we scored it for that. The, um, [00:40:00] price is not less than IV1. IV1 comes in at, uh, let me see, uh, $24.66.

Price was about $45.88 when I did my analysis. But, um, IV2, uh, intrinsic value number two, was $64, so the price was under that, so we scored it for that. Um, book price, uh, it’s, uh, m- well, the price to book ratio is 2.28. Um, so couldn’t score it for that. Uh, couldn’t score it for book plus 30 either.

Three-point uptrend, though, obviously passed, and it got a new three-point uptrend as well. Growth over PE is not greater than 1.5. Does have positive book value growth. Um, the PE is not less than the yield. The yield is not [00:41:00] above the bank debt rate. The forecast intrinsic value is not greater than twice the price.

Um, and the Pr/OpCaf is, of course, less than seven. They don’t have a qualified audit. Um, that’s it. So all up, they had a QAV quality score of 77% and a QAV score of 0.22

Tony Kynaston: Very good

Cameron: Yeah. So cheap, generating cash. There’s some risk there as you indicated, but um

Tony Kynaston: Compensated with the price, yeah

Cameron: Making money, seem to know what they’re doing, been around relatively long time.

Tony Kynaston: Yeah

Cameron: is Apache. That’s QAV America.

Tony Kynaston: [00:42:00] Do you reckon they start, do you reckon they start their board meetings with that?

Cameron: Yeah, of course. No, they, they s- they, they all go, “Oh, oh, oh, oh, oh, oh, oh, oh,” go around in circles, circling the wagons, I think, you know, with headdresses on and the whole thing, with that music playing

Tony Kynaston: Yeah.

Cameron: I’m gonna send you the bongo version of Apache after we get out of this. Okay. And the Grandmaster Flash version.

Tony Kynaston: All right

Cameron: All right. Thank you, TK. That is QAV America for this week. Happy hunting, everyone

Tony Kynaston: Thanks, Cam